In This Week’s Update:
- Tax information now available for online access and “hard” copies will be mailed as well today for each taxable account. K-1’s still coming with deadline of March 15th.
- The U.S. stock indices ended last week on a positive note with reassurance of FED policy from Janet Yellen’s first testimony before Congress.
- Our outlook remains cautious on stocks but increased commodity prices and lower interest rates have helped our portfolios so far in 2014 relative to risk.
- The “real” employment picture is still very weak and not much improvement since 2008.
READ ON FOR MORE DETAILS………………………………………………………………..
2013 Income Tax Information:
1099’s are now available for access online for 2013 income tax information. REMEMBER: A “CSV” file is also available to download all transactions into most tax software. This file can be sent to your tax preparer and should save them time when completing your 2013 income tax return. Hard copies will also be mailed by the Trust Company of America today for taxable accounts to the address of record. K-1 forms are not out yet and the deadline this year is March 15th. Call us if you have any questions or if we can help in any way.
The Markets:
One misstep by the Janet Yellen, who made her first appearance before a House Committee last week, could quickly bring a torrent of criticism. But right out the gates, markets cheered what they heard from the new Fed chief. The major U.S. stock market indices had their best week for 2014 to date.
It didn’t hurt that emerging market woes have receded, removing a stiff headwind. A debt ceiling agreement in Congress also helped add to the positive events. The markets simply ignored an unexpected decline in January retail sales (U.S. Commerce Dept., Bloomberg) and an unexpected drop in January industrial production (Federal Reserve, Bloomberg), choosing instead to blame most of the recent economic weakness on harsh winter weather.
Yellen noted in her prepared remarks that she expects there to be “a great deal of continuity” between her leadership at the Fed and former Fed Chairman Ben Bernanke. She expressed confidence in the economic outlook and pledged to keep rates low for a considerable period, which was just the tonic jittery investors were hoping to hear. She also expects the Fed to continue to trim its monthly bond buys in measured steps, and it would take a “notable change in the (economic) outlook” for the Fed adjust the current timetable.
Our Outlook:
We remain cautious in our overall investment allocations, but with commodity prices rising and interest rates falling so far this year, our portfolios have performed well relative to each risk category. Stocks still appear overvalued to us at this time and we continue to monitor the situation regularly. We will keep you posted.
The Economy:
Challenges facing the Fed include the sharp slowdown in labor force growth, which has resulted in a faster-than-expected decline in the unemployment rate (BLS data).
The chart below reinforces several arguments. First, the red line reviews what I call “the adjusted labor force,” which assumes that the labor force continued to expand as the population in the U.S. expanded.
*The adjusted labor force assumes the labor force participation rate and the labor force to population ratio had held at its January 2008 level.
**Officially classified as unemployed: out of work AND actively searching for work
The dark blue line reflects the actual growth in the labor force (defined as employed + unemployed [out of work AND actively searching]).
Demographics are likely playing a role in the slowdown in labor force growth as baby boomers retire. But discouraged workers that have given up their job search are also playing a part as well as folks that might be staying in school or returning to school amid diminished job prospects.
Notably, the labor force has grown by just 584,000 between October 2008 (BLS), the first reading after Lehman Brothers failed, and January 2014. Had we continued at the prior pace, the labor force would include an additional 7.9 million workers. If all of these had failed to find work, the unemployment rate would stand at 11.2% today (BLS data)!
Finally, at 145.2 million employed workers (green line), the chart does reflect growth in employment. As the green line gradually approaches the red line (difference equals those who are officially unemployed, or 10.2 million), the unemployment rate has fallen. But the above example reveals that a lack of any meaningful growth in the labor force has also contributed to the drop.
God Bless,
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
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